Day Rate & IR35 Calculator
See exactly what a contract pays once tax is taken into account — and how much it changes when you flip from outside to inside IR35.
Take-home comparison
| Outside IR35 | Inside IR35 |
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What is IR35?
IR35 (technically the "off-payroll working rules") is HMRC's way of stopping people from working as contractors when they're really disguised employees. If a contract is deemed inside IR35, the worker pays roughly the same tax and NI as a permanent employee, even if they invoice through a limited company. Outside IR35 contractors can pay themselves a small salary plus dividends from their company — usually more tax-efficient.
Since April 2021 (private sector) and 2017 (public sector), the responsibility for determining IR35 status sits with the end client, not the contractor. If they get it wrong, they're on the hook — which is why so many companies took a blanket "inside" approach.
How the inside-IR35 calculation works
Most inside-IR35 contracts are run through an umbrella company, which acts as your employer. Your day rate gets reduced by the umbrella's costs before reaching you:
- Employer's NI at 15% (above the £5,000 secondary threshold, 2025/26)
- Apprenticeship Levy at 0.5% (only for very large umbrellas)
- Umbrella margin — typically £15–£25/week
- Holiday pay (12.07% of working time) — sometimes rolled in, sometimes deducted and paid back when you take leave
What's left becomes your taxable salary, on which you pay normal employee Income Tax and NI. The result is usually 60–65% take-home.
How the outside-IR35 calculation works
Outside IR35 you typically run a Personal Service Company (Ltd):
- Salary — pay yourself up to the personal allowance (£12,570) to use it tax-free.
- Allowable expenses reduce taxable profit (accountancy, software, training, business travel, equipment).
- Corporation Tax — 19% on profits up to £50k, 25% above £250k, with marginal relief in between (effective 26.5% on profits in the £50k–£250k band).
- Dividends — paid from post-CT profit. £500 dividend allowance, then 8.75% basic / 33.75% higher / 39.35% additional rate.
Total take-home is typically 70–80% of revenue — better than inside, but it requires running a company, doing accounts and paying for an accountant.
Quick reference: day rate to annual
| Day rate | 5 days, 46 wks | Outside take-home | Inside take-home |
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Estimates only. Real contractor take-home depends on expenses, pension contributions, dividend strategy and which umbrella you use.
FAQs
What's the difference between umbrella and limited company?
Umbrella = the umbrella company employs you and runs PAYE; you receive a payslip. Used for inside-IR35 contracts and quick gigs. Limited company = your own Ltd company invoices the client; you decide your salary/dividend mix. Used for outside-IR35 work and longer-term contracting.
Can I be inside IR35 on one contract and outside on another?
Yes. IR35 status is determined contract-by-contract, not contractor-by-contractor. You might run two contracts in parallel — one through an umbrella, another through your Ltd.
How much should I keep for tax?
Outside IR35 contractors typically set aside 25–30% of revenue: corp tax (19–26.5%) plus personal dividend tax. Inside IR35 you don't need to set aside anything — the umbrella handles it.